SHAHID MASOOD MANZAR (CHAIRMAN).---- These titled three appeals have been directed against two separate impugned Orders-in-Appeal No. 719/2018 dated 25.04.2018 against order under section 121(1)(d) for the tax year 2015 and No. 717, 718/208 under sections 161/205 for the tax years 2014 and 2015 passed by the Commissioner Inland Revenue, (Appeals-II), Islamabad.
2. The facts leading to the filling of appeals are that the appellant is an AOP, engaged in the business of construction. The case for the tax year 2015 was selected for audit through random ballot under section 214C of the Income Tax Ordinance, 2001 by the FBR. Audit proceedings were initiated under section 177 of the Ordinance, 2001. Notices issued allegedly remained un-complied with, which culminated to an assessment under section 121(1)(d) of the Income Tax Ordinance, 2001 by making addition under various heads of account towards income of the appellant under section 174(2) of the of Ordinance, 2001. For appeals under sections 161/205 for the tax years 2014 and 2015, it was alleged that the appellant has not fully discharged its legal obligation of withholding agent while making payments. The appellant was confronted with different issues through notices asking for various details/documents and considering the reply the impugned orders were passed by the assessing of ficer.
Against the treatment, as meeted out to the appellant, appeals were filed with the learned CIT(A), who upheld the orders under section 121(1)(d) and under sections 161/205 vide its Order No. 717, 718 and 719/2018 dated 25.04.2018. Being, aggrieved by the said orders, the appellant filed instant appeals before this Tribunal on legal issues as well as on factual grounds.
Appeal under section 121(1)(d)-T ax year 2015
3. The learned counsel appearing on behalf of the appellant argued that the learned CIR(A) was not justified to uphold the order under section 121(1)(d) dated 15.03.2018, without applying an independent and judicious mind.
He has stated that the assessing officer was not justified to frame the order under section 121(1)(d) of the Income Tax Ordinance, 2001, without issuing the notice under sections 121/122, of the Income Tax Ordinance, 2001, which is mandatory requirement of law and hence the order is contrary to the provision s of law. Reliance in this regard was placed on a judgment of the Honoura ble apex Court reported as [1971 SCMR 681] and [2002 PTD 102 (H. C.
Kar.). The learned AR vehemently contended that the alleged order under section 121(1)(d) dated 15.03.2018 is ab intio void, illegal and contrary to the provisions of law, as order for the year under consideration has already been framed in the case by the ACIR vide its order bar Code No.100000029629185 and a "demand notice" under section 137(2) was also issued on 14.03.2018 vide bar Code No. 100000031018615 and hence the alleged order dated 15.03.2018 is arbitrary unlawful and without jurisdiction. He further stated that the assessing officer was not justified to make the additions under section 174(2) on various head of accounts just on stock phrase basis by applying percentage [i.e "fifty" percent] in a slip short manner , which is contrary to the provisions of law. The learned counsel argued that the alleged expenses are duly verifiable and are in accordance with the provisions of law, which cannot be disallowed on mere assumptions. Reliance was also placed on a judgment of the Honourable Lahore High Court, Lahore reported as 2002 PTD 1496 (Trib.) and IT A No. 1632/LB/2016 dated 25.05.2017.
4. The learned D.R. on the other hand, has opposed the arguments advanced by the learned A.R. He has argued that the order of the assessing officer was in accordance with the provisions of law and has rightly been upheld by the learned CIR(A) .
5. Both the parties have been heard and relevant record pursued and case law relied upon have been considered.
We have looked in to the matter and observed that there are two separate order s under section 121(1)(d) of the Income Tax Ordinance, 2001 for the year under consideration, which have been framed by the assessing officer on two consecutive dates, copies of both the orders were presented before this forum. The first order under section 121(1)(d) was framed by the ACIR on 14.03.2018 vide bar Code No.10000002962 9185 by accepting the declared version of the taxpayer and a "demand notice" under section 137(2) was also issue d on 14.03.2018 vide bar Code No. 100000031018615, which is in field. While another order under section 121(1)(d) was again passed in a slip short manner by the same assessing officer on the very next day vide bar Code No. 100000031031542 dated 15.03.2018 and demand notice vide bar Code No. 100000031062422 dated 15.03.2018 by creating tax demand against the taxpayer . The first appellate authority did not apply an independ ent and judicious mind, while adjudicating the appeal of the taxpayer . He did not bother to consider that the first order dated 14.03.2018 holds the field and in the presence of the same, another assessment by the ACIR is contrary to the provisions of law as well as norms of justice, which cannot be endorsed at any forum. The second assessment order under section 121(1)(d) of the Income Tax Ordinance, 2001 dated 15.03.2018, as framed by the assessing officer, is a lucent demonstration of excess of authority and denial of justice, which need to be curbed at appropriate levels. As the original order dated 14.03.2018 holds field therefore we feel no hesitation in holding that the order under section 121(1)(d) dated 15.03.2018 is illegal, unlawful and deserves quashment/cancellation and we hereby order so.
6. Even on merit we find that the impugned order under section 121(1)(d) is not a speaking order . The impugned additions under section 174(2) of the Ordinance, 2001 out of profit and loss account under various head of accounts were made just on stock phrase basis by applying percentage in a slip short manner . We observed that learned CIR(A) also ignored the fact that such kind of estimation is not permissible in the new scheme of Income Tax Ordinance, 2001. The assessing officer, while making the disallowance on account of operating expenses and addition towards income of the appellan t, ignored the well settled preposition of law that no business can be conducted without incurring expenditures. It seem that both the authorities below are in Old frame of mind. For making any addition, it is the responsibility of the assessing authority to pin point the defects and substantiate the allegation with evidence that the alleged expenditure is liable to be added back under section 174(2) of the Ordinance, 2001. Reliance is also placed on the judgments reported as 2006 PTD (Trib.) 1665 and 2007 PTD (Trib.) 345. Such type of P&L additions on ad hoc estimation basis are out of scope of the provisions of law and hence addition under section 174(2) of the Income Tax Ordinance, 2001 are also unjustified. Therefore the impugned additions are also not maintainable in the eyes of law . Which are hereby deleted.
7. In view of the above, the appeal of the taxpayer is accepted on legal as well as factual grounds and order paved by the assessing officer under section 121(1)(d) dated 15.03.2018 is hereby canceled and the impugned order or the learned CIR(A) is hereby vacated Appeal under section 161/205 - Tax years 2014 and 2015
8. The learned counsel argued that the learned CIR(A) was not justified to uphold the orders under sections 161/205 dated 28.02.2018 for the tax years 2014 and 2015, without applying an independent and judicious mind.
The learned AR stated that the assessing officer was not justified to frame the orders under sections 161/205 on ex-parte basis just on stock phrase basis, without confronting the charge of tax under sections 161/205, which is a mandatory 'requirement of law. He added that notices under sections 161/205 of the Income tax Ordinance, 2001 have never been issued in the case, which is duly evident from record. It is argued that the ex-parte order under sections 161/205, as framed by the assessing officer on 28.02.2018, is ab-initio void, illegal and contrary to the provisions of law as well as facts of the case, as the same was passed by the ACIR subsequent to the date of compliance of notice, which leaves no justification to pass an ex-parte order . He further stated that orders under sections 161/205 have been framed on a date, for which the case was neither fixed for hearing nor any notice regarding hearing of the case was issued for that date and hence the order is not sustainable in the eyes of law.
Reliance was placed on a judgment of this tribunal reported as [2007 PTD 1048 (Trib) Elaborating the arguments on this issue, he added that the reconciliation of expenses and income tax deduct ed thereon along with copies of paid challans, exemption certificates, invoices and other related documents/details were duly provided to the assessing officer on 31.10.2016 in compliance of notice under Rule 44(4) of the Income Tax Rules, 2002, whereas the impugned orders under sections 161/205 were framed on 28.02.2018, Without issuance of notice under sections 161/205 of the Ordinance, 2001. The assessing officer framed the order under sections 161/205 arbitrarily by treating almost entire payments, as made by the taxpayer , as liable to "withholding tax" deductions just on stock phrase basis, which contrary to the provisions of law as well as norms of justice. Reliance was placed on a judgment of the Honourable Lahore High Court, Lahore reported as [ 2002 PTD 1496 (H.C Lah.)].
9. The learned D.R. on the other hand , has opposed the arguments advanced by the learned A.R. He has supported the impugned orders under sections 161/205, as framed by the ACIR. He stated that the credit of income tax deducted and deposited by the taxpayer has properly been given by the assessing officer which has rightly been upheld by the learned CIR(A) and require no further interference. He has therefore requested to dismiss the appeals of the taxpayer .
10. Both the parties have been heard and relevant record pursued and case law relied upon have been considered.
The assessing officer, while framing ex-pa rte orders has charged tax amounting to Rs. 327,798/- and Rs.244,204/- under section 161 for the tax years 2014 and 2015 respectively on account of salaries and wages on the pretext that the taxpayer failed to provide re-conciliation statements of taxes withheld and deposited, therefore due to un- verifiability of payments and deduction of tax thereon is recoverable under section 161 of the Ordinance, 2001.
We have noted that the observation of the assessing officer is contrary to the facts of the case and is self- contradictory . The assessing officer himself observed, on page 2 para 4 of the assessment order , that re- conciliation statement along with copies of paid challans of withholding tax deduction, exemption certificates and copies of invoices have duly been provided by the taxpayer on 31.10.2016. Copies of re-conciliation statement have also been provided at this forum, which reflect compete breakup of taxable/exempt salaries and income tax withheld thereon.
It is also observed that the compliance of notice under Rule 44(4) of the Income Tax Rules, 2002 was made by the taxpayer on 31.10.2016, but the order under sections 161/205 was passed by the assessing officer on 28.02.2018, meaning thereby after "four hundred and eighty five" days of the date of compl iance of notice, which leave no justification of such kind of assessment arbitrarily . ACIR treated almost entire payments, as made by the taxpayer , as liable to withholding tax deduction. He did not considered the BTL payments claimed by the appellant and has charged tax on entire amount of salaries, without confronting the alleged amount of so called default. It .is obligatory on part of the assessing authority to confront the taxpayer through notice under sections 161/205 and to show the intention to charge tax on specified amount of default, which has not been done in the instant case under review .
Keeping in view of the facts of the case and legal infirmities, the charge of tax on account of "salaries and wages" for both the years amounting to Rs. 327,9 78/- for the tax year 2014 and Rs. 244,204/- for the tax year are hereby deleted.
11. Tax has been charged under section 161 to the tune of Rs.380,581/- for the tax year 2014 and Rs.2,873,837/- for the tax year 2015 on account of "other in-direct expenses" under the head "steel" purchased, without issuance of show-cause notice under sections 161/205.
It is observed that the alleged amount of tax has been charged by the assessing officer, by calculating the difference of amount claimed as exempt from provisions of withholding tax deduction and an estimated figure to be covered under "exemption certificates" provided by the taxpayer in compliance with the notice under Rule 44(4).
Copies of "exemption certificates" under section 153 of the Ordinance, 2001 have also been provided at this forum.
Moreover , it has also been noted that the defaulted amount of Rs. 63,863,045/- for the tax year 2015, against which tax has been charged by the ACIR, is glaringly mis-calculated, as "purchase of steel" during the year 2015 is to the tune of Rs.93,679,690/- instead of Rs. 136,231,260/- as accounted for by the ACIR, which is misleading the facts of the case.
We observed that the alleged charge of tax has been made by the assessing officer just on mere assumptions, without proper and judicious ,application of mind. It seems that the assessing officer is bent upon to create the tax liability against the tax payer . The first appellate authority has also not applied an independent and judicious mind and has upheld the order in a mechanical manner . The flaw, such as provisions of re-conciliation statement, issuance of show-cause notice and other legal as, well as factual defects have already been discussed supra, which need not to be discussed again. Therefore it is held that the charge of tax under section 161 amounting to Rs. 380,581/- and Rs. 2,873,837/- for the tax years 2014 and 2015 respectively is unjustified and uncalled for and hence is hereby deleted.
12. Income tax under section 161 has been charged to the tune of Rs.509,152/- and Rs. 498,482/- for the tax years 2014 and 2015 respectively by the ACIR, without specifying any head of account, against which the alleged default has been calculated. The assessing officer charged tax with the remarks that "You have made payments against the purchase of Sand Rs. 1,642,900/-, Crush Rs.1,412,800/-, Bricks Rs.1,978,550/-, Crub Stone Rs. 4,623,187/- Electric Supplies Rs. 2,661,849/-, Concrete Rs.1,680, 322/-, Various Material Rs.787,676/- Food and Accommodation Rs. 5,687,798/-, Utilities Rs. 1,103,822/- and Diesel Rs. 988, 3221 - totaling to Rs.22,765,226/- and deducted the income tax amounting to Rs. 400,769/- against the value of Rs. 10,036,422/, After allowing the tax credit of tax deposited as mentioned in above CPR's amounting to Rs. 400,769/- It is crystal clear that you have failed to deduct the income tax on the value of purchases Rs.12,728,804/- (22,765,226-10,036,422) for the tax year 2014. With similar observation an amoun t of Rs.11,077,378/- (21,519,861-10,442,483) has been estimated for the tax year 2015, without specifying any head of account against the alleged default of withholding tax deduction.
The Learned AR contented that the assessing officer, committed a glaring mistake, while charging tax to the tune of Rs.509,152/- for the tax year 2014 and Rs.498,482/- for the tax year 2015, without specifying any head of account, against purchase of "sand", "crush", bricks", "curb stones", "electric supplies", "chemical", "concrete", "various material", "food and accommodation" "utilities" and "diesel" etc., which is contrary to the provisions of law, as most of them are "counter purchases" and are not liable to withholding tax deduction. Moreover , utilities are also not liable to withholding tax deductions. He further added that "food and accommodation" was provided to the daily workers/labor on day to day basis, which cannot by any stretch of imagination, liable to withholding tax deduction and hence the charge of tax is arbitrary and unjustified and contrary to the norms of justice.
It is observed that the alleged default of withholding tax deduction was made by the assessing officer, without any basis and without specifying any head of account just on estimated basis, against which so called amount has been worked out, which cannot be endorsed at all. Moreover , the alleged amount of default has been charged by the ACIR, without confronting the same through issuance of specific notice under sections 161/205, which is also contrary to the provisions of law .
In view of the above narrated facts of the case, as well as legal infirmities, it is held that the charge of tax under section 161 amounting to Rs. 509,152/- for the tax year 2014 and Rs. 498,482/- for the tax year 2015 are uncalled for and hence are hereby deleted.
13. Tax has been charged under section 161 to the tune of Rs.231,267/- for the tax year 2015 on account of "Map designing and other consultancy" by the assessing of ficer.
It is argued that that the assessing officer was not justified to charge tax on account of "map designing and other consultancy , without confronting to the taxpayer , which is contrary to the provisions of law as well as norms of justice. The learned AR added that income tax has duly been deducted and deposited, wherever applicable, and that the provisions of section 153 of the Income Tax Ordinance, 2001 have duly been complied with by the taxpayer . He further stated that complete re-conciliation statement along with paid challans and details were provided to the assessing officer on 31.10.2016 and if any discrepancy was found by the ACIR he should ask the taxpayer for his explanation through notic e under sections 161/205 but he did not do so, which is contrary to the established principal of assessment proceedings.
We have looked into the matter and have pursued available record on file and are inclined to agree with the assertions made by the learned AR of the taxpayer . It is observed that the ACIR has charged tax under section 161, without issuance of notice under sections 161/205. Moreover , he calculated the alleged default of tax on mere assumption, without taking into the consideration that tax has duly been deducted and deposited on this account by the taxpayer . Copies of paid challans are also provided at this forum. Considering the facts of the case and legal infirmities discussed supra, we hold that the charge of tax under section 161 on account of "Map designing and other consultancy " amounting to Rs. 231,267/- have been made without any justification and is hereby deleted.
The assessing officer, while framing ex-parte orders has again charged tax amounting to Rs. 777,568/- and Rs.
1,558,712/- under section 161 for the tax years 2014 and 2015 respectively on account of Labor wages on the pretext that the credit of salaries and wages has already been allowed. Furthermore these payments relate to the sub-contractors and have failed to deduct the income tax under section 153(1)(C) @ 6%.
It is argued that the assessing officer was not justified to charge tax under section 161 of the Income Tax Ordinance, 2001 on account of "labor wages" just on stock phrase basis, without confronting to the taxpayer , as the same were paid to "daily workers" and are below taxable limits and hence the charge of tax is arbitrary , unjustified and unreasonable and contrary to provisions of law as well as norms of justice. The learned AR further stated that the ACIR has misled the facts of the case, as the alleged "salaries and wages", the credit of which has already allowed as alleged in the body of order , relates to "administrative and general expenses" only, whereas the alleged amount relates to payments made to the "labor"/"daily workers". The said amounts have separately been reflected, which is duly evident from reconciliation statement and hence the charge of tax under section 161 is on just stock 'phrase basis, without confronting to the taxpayer is contrary to the provisions of law .
It is observed that the submission of the AR carries weight, as the alleged "labor wages" have been reflected in the reconciliation statement separately . The alleged payments were made to the "daily workers" on day to day basis and are below the taxable limits, which are not liable to withholding tax deductions. The assessing officer ignored all the norms of justice, while framing the order under sections 161/205 without any cogent reason and charged tax under section 161 in the case just to meet his budgeted targets, which is contrary to the norms of justice. Therefore it is held that the charge of tax under section 161 amounting to Rs. 777,588/- for the tax year 2014 and Rs.
1,558,712/-for the tax year 2015 are unjustified and hence are hereby deleted.
15. The assessing officer has charged the tax to the tune of Rs.906,348/- and Rs.13,722/- on account of "payment to contractor" under section 161 for the tax years 2014 and 2015 respectively .
The learned consul argued that the assessing officer was not justified to charge tax under section 161 on account of "contract work", on mere assumptions, without confronting to the taxpayer , as income tax has duly been deducted thereon in accordance with the provisions of law and hence the charge of tax on the same would tantamount to double taxation, which is not permissible in the eyes of law. He further stated that the detail of withholding tax along with copies of paid challans were duly provided to the assessing officer, vide our letter dated 31.10.2016, which is duly evident from record, but he charged the tax on mere assumptions, without confronting to the taxpayer , which is arbitrary and unjustified.
We have noted that the observation of the assessing officer is not based on facts. Income tax has duly been deducted by the taxpayer and is duly reflected in the reconciliation statement, which has duly been provided to the assessing officer on 31.10.2016. The assessing officer should have confronted his observation, if any, to the taxpayer through a specific notice under sections 161/205 of the Income Tax Ordinance, 2001, which has not been done so. The ACIR proceeded to make the assessment after a lapse of almost "one year and four" months, which is totally ridiculous and against the provisions of law as well as norms of justice. The legal and factual discrepancies have already been discussed supra and need not to be discussed again. Considering the facts of the case, charge of tax under section 161 on account of "contract work" to the tune of Rs.906,348/- for the tax year 2014 and Rs.13,722/- for the tax year is declared unjustified and uncalled for and hence is hereby deleted.
16. The default surcharge amounting to Rs.1,967,433/- and Rs.2,699,717/- under section 205 of the Income tax Ordinance, 2001 have been charged for the tax years 2014 and 2015 respectively while framing the impugned orders under sections 161/205.
As the principal amount of tax charged under section 161 has been deleted, consequently the surcharge to the tune of Rs.1,967,433/- and Rs.2,699,717/- for the tax years 2014 and 2015 is also not applicable and hence is hereby deleted.
17. For the foregoing discussion and in view of all aspects, the appeals are disposed of f as indicated above.
Order accordingly .